Lawmakers call for ‘penalty relief’ from IRS amid millions of backlogged returns

The IRS currently has millions of unprocessed tax returns from last year heading into a new tax filing season.

Updated: January 30, 2022 - 11:11pm

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A bipartisan group of lawmakers from both chambers of Congress called on the U.S. Department of Treasury and the Internal Revenue Service to “provide penalty relief for taxpayers” in light of millions of backlogged, unprocessed individual tax returns.

The IRS warned Americans last week with an “urgent reminder” to file electronically “to help speed refunds” heading into the next tax season, signs that this year could feature the same delays seen in 2021.

The IRS currently has millions of unprocessed tax returns from last year heading into a new tax filing season. The bipartisan group of lawmakers, 214 in all, said the uncertainty and delays have been “devastating” for small businesses.

“In many cases, the delayed processing of amended returns has been devastating to small businesses in our communities whose applications for emergency loans from the Small Business Administration have been caught in limbo nearly two years after the COVID-19 pandemic began,” the letter said. “The situation has deteriorated to a point that the Taxpayer Advocate Service (TAS) will no longer accept cases solely involving the processing of amended returns. This has made it impossible for frustrated taxpayers to find any help.

“When our constituents cannot get assistance from the IRS and TAS, they contact us, and we have our hands tied at this point as well,” the letter added.

The National Taxpayer Advocate (NTA) released its federally commissioned report in mid-December, which reported that the IRS still had 2.8 million unprocessed business returns, 6.2 million unprocessed individual returns, 2.4 million unprocessed amended individual returns, along with 427,000 amended business returns. About 4.75 million pieces of correspondence to the IRS from taxpayers around the country are also in limbo.

“The IRS is in crisis and needs to apply resources to its core mission – processing returns and paying the corresponding refunds,” NTA said.

The IRS has cited “several critical tax law changes that took place in 2021 and ongoing challenges related to the pandemic” for the backlogged returns. Americans seeking to receive tax refunds could see delays, especially if they do not file electronically.

A coalition of Republicans sent letters to the IRS on several occasions last year raising questions about the backlog.

“This massive backlog is causing significant and unnecessary burdens for families and small businesses who can’t get answers from the IRS about why their returns have not been processed,” the Republicans’ letter said. “The IRS is in danger of falling into a vicious backlog cycle that will harm millions of taxpayers.

Now, a bipartisan group is calling for relief for Americans. The members said they are willing to provide support to the agency but called on them to alleviate the uncertainty for taxpayers.

“We stand ready to support the IRS and look forward to hearing how we can help you address any obstacles facing the agency. However, we respectfully request the IRS consider the following measures to bring immediate relief to taxpayers, and reduce the backlog, during this tax filing season,” the letter said. “...While we recognize no single action will alleviate issues that have resulted from difficulties at the IRS spanning administrations of both political parties, these steps would provide our constituents with greater certainty as we enter this year’s filing season.”